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A semi-analytical approach to Canary swaptions in HJM one-factor model

Listed author(s):
  • Henrard Marc

    (Bank for International Settlements)

Leveraging the explicit formula for European swaptions and coupon-bond options in HJM one-factor model, we develop a semi-explicit formula for 2-Bermudan options (also called Canary options). We first extend the European swaption formula to future times. We are able to reduce the valuation of a 2-Bermudan swaption to a single numerical integration at the first expiry date. In that integration the most complex part of the valuation of the embedded European swaptions has been simplified in such a way that it has to be performed only once and not for every point.

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Paper provided by EconWPA in its series Finance with number 0310008.

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Date of creation: 08 Oct 2003
Date of revision: 25 Nov 2004
Handle: RePEc:wpa:wuwpfi:0310008
Note: Type of Document - LaTeX; prepared on Linux; to print on HP;
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